US Federal Reserve comments send dollar surging but equities subdued
While the Fed provided an upbeat assessment of the US economy after its latest policy meeting, the news took the wind out of an advance across global markets in October, which had been supported by expectations a rate rise would be delayed.
Samsung Electronics jumped almost five percent at one point after announcing a $10 billion share buyback and a surge in net profit during July-September, providing support to Seoul’s broader index.
However, Nintendo in Tokyo slumped after announcing the release of an eagerly awaiting smartphone game would be delayed.
Investors are also keeping tabs on Beijing, where they hope the ruling Communist Party will unveil fresh measures to support the stuttering Chinese economy after a four-day meeting draws to a close.
The Fed on Wednesday kept interest rates at record lows but expressed faith in the outlook for the world’s top economy, brushing over recent weak spots — such as under-par jobs growth — and focusing on what it called “solid” consumer spending and business investment.
Policymakers dropped a warning from September that the muted global economy could affect the US, even as worries mount about slowing growth in China and falling commodity prices.
Data since last month “suggests that economic activity has been expanding at a moderate pace”, the statement said.
It then explicitly pointed to the possibility of a rate hike in its next meeting in December, dampening market predictions it could be held off until March.
“This is exactly what the market wanted,” Scott Wren, a senior global equity strategist in St. Louis at Wells Fargo Investment Institute, told Bloomberg TV.
“The market wants clarity and this is providing clarity. I feel pretty good that we’re going to have a rate increase in December.”
The dollar climbed to 121.09 yen in New York late Wednesday after the announcement, while the euro fetched $1.0921 — up from 120.40 yen and $1.1040 earlier in Asia.
– Sony surges –
On Thursday in Tokyo, the dollar dipped to 120.77 yen following a forecast-busting rise in Japanese output, while the euro was at $1.0940.
The single currency was also at 132.14 yen from 132.24 yen in US trade and well off the 132.98 yen earlier Wednesday in Asia.
The greenback rose against most emerging currencies, continuing a trend that has seen investors withdraw cash back to the US in the hope higher rates will offer safer returns on dollar-priced assets.
The South Korean won fell more than one percent, while Indonesia’s rupiah sank 0.50 percent and the Malaysian ringgit slipped 0.20 percent.
The Australian and New Zealand dollars also retreated, with expectations growing that both countries’ central banks will cut interest rates soon.
US dealers welcomed the Fed’s brighter outlook for the domestic economy, after a string of recent weak data had called its strength into question.
On Wall Street the Dow, S&P 500 and Nasdaq each chased up more than one percent.
Fears of a shutdown of the world’s largest economy were also soothed when the US House of Representatives late Wednesday passed a bipartisan, two-year budget deal that boosts federal spending by $80 billion and raises the debt ceiling.
However, Asian investors were less enthralled, with Hong Kong closing down 0.60 percent in the afternoon, Sydney losing 1.3 percent.
Bourses in Indonesia, Thailand and the Philippines — where foreign investment is crucial — also tumbled, while Tokyo edged up 0.17 percent and Shanghai added 0.38 percent.
Seoul ended down 0.4 percent. Market heavyweight Samsung soared 4.9 percent at one point on news of its huge buyback, which flagged growing confidence at the South Korean titan. It ended up 1.3 percent.
Favourable exchange rates and a renewed focus on components were behind the company’s 30 percent net profit jump in July-September compared to a year earlier.
But videogame giant Nintendo closed nine percent lower after announcing its first phone app game — Miitomo — would not come out until March, after initially aiming for the end of this year.
The firm’s new president Tatsumi Kimishima said it needed more time to “boost the quality” of the game, which is seen as crucial to its future as it battles Sony and Microsoft for market share in the games market.
After trading closed, Sony announced a six-month net profit of almost $1.0 billion, crediting its PlayStation videogame unit and a weak yen with helping it overcome years of losses. The profit followed a more than $900 million loss a year earlier.
Panasonic also said it booked a 37 percent jump in net profit to $921 million in the same period.